The articles below represent only a sampling of the articles Ken has written over the past 7 years in the weekly Lorain County publication THE PRESS! For past articles please e-mail your request for a past topic of your choice!
Do Not Buy A House For The Tax Break!
The true tax savings of deductible mortgage interest, mortgage insurance, property taxes and tax free treatment for up to $500,000 in profits are probably less than you think. Putting that matter into proper perspective can effect your key decision to buy or rent.
All of these tax breaks
A first glance the tax deduction for interest, insurance and taxes look very valuable. For instance, a homeowner with a new 30-year fixed-rate mortgage for $300,000 at 4.5% would have a monthly mortgage payment of $1,520 with a total first year interest of about $13,400.If the homeowner is in the 25% tax bracket, the interest deduction would be $3,350. A large deduction but other factors can make the deduction less valuable.
If you are not now itemizing deductions, you are receiving a “standard deduction”. You can not do both. The standard deduction is now $5,700 for individuals and $11,400 for couples. In our example a couple can take the $11,400 or claim the $13,400 mortgage interest. The mortgage interest alone will only increase the available deduction by $2,000 for a tax savings of $500, not $3,350.
In real life the couple might have other deductions which if they come to $11,400 would allow the full $3,350 to be itemized. Studies show that about 63% of home owners itemize indicating that they get some additional tax savings by itemizing. You have to go through your numbers to determine if you can truly think of buying more house or not based on the “potential” tax savings of itemizing the interest, insurance and taxes on an annual basis.
Remember also that the interest deduction will shrink over time as you pay down the mortgage, however if you are the average homeowner moving on average every 7 to 8 years, this concern will be minimal.
Owning a home over the long term is still an excellent financial strategy than renting because mortgage payments are generally fixed while rents tend to rise steadily. However a realistic look over the last 40 to 50 years shows that homes appreciate about 4% per year while the stock market averages about 10% per year. We all know that these percentages can change wildly depending on when you buy or sell but these are good indicators of appreciation potential. Stocks also do not require the payment of real estate taxes or on-going maintenance costs.
So for most persons the best financial strategy is to own a modest home and to invest the cost difference in the stock market. Also remember that for the lower-income homeowner that same $13,400 interest deduction in the 15% tax bracket becomes only a $2,010 tax savings while the standard deduction remands the same at $11,400 for a couple. The calculations show a completely difference result if you are a single person in the 25% tax bracket and your standard deduction is only $5,700. So while the deductions can provide a strong reason to purchase a home, it does not provide a strong reason to take on a bigger loan.
How Do You Decide Which Realtor® To Hire?
We all know that one of the top pieces of information that consumers would like to have in order to decide which agent to use is to know each agent’s real estate history. It is not a simple issue because Realtors come and go in our business and all have different previous career histories.
It is not easy to become a Realtor as that step alone requires significant study and a passing grade on the Ohio real estate agent test. Once the State of Ohio recognizes an individual as an agent, that person becomes a Realtor® by joining the National Association of Realtors.
There are about 500 Realtors who have designated our market area as their primary service area. Each of these Realtors is required to take 30 hours of continuing education every three years to maintain their Ohio license to practice the real estate profession of assisting buyers and sellers. Some of these agents have taken additional time out of their schedules and spent the effort to obtain advanced real estate training and education in order to better serve their real estate clients. When you decide it is time to hire a Realtor, you would do well to understand the meaning of the following designations.
The ABR designation is held by nearly 120 agents. It is awarded by the Real Estate Buyer’s Agent Council to those who have completed a 16 hour course and have been involved in at least 5 buyer transactions. Now that is about 2 months of work for an experienced Realtor but at least you would know that the agent with the ABA is not brand new!
The GRI designation is held by a number of agents. These agents have had special training in residential real estate principles and practices beyond the minimum State required courses.
The CRS designation is considered the highest designation that can be earned by a residential Realtor. Courses covered include marketing, listing strategies to more effective pricing, promotion and negotiating. Completion of this designation generally requires the completion of 4 2-day courses and having successfully completed at least 75 real estate transactions for their clients. The typical full time agent will need about 3 to 5 years of experience to complete 75 or more successful sales transactions. Less than 3% of Realtors have earned the CRS!
The E-PRO is a training program presented entirely “on-line” to certify that the real estate agent as an Internet Professional. This course stresses the ability of a Realtor to properly communicate on line with buyers and sellers. There are very few local agents who have earned the e-PRO designation.
The SRES designation shows that a Realtor has taken the time to learn more about the special needs of senior citizens. The purpose is to recognize the special needs of maturing citizens when deciding how to handle what is probably their largest financial asset. SRES agents have taken the time to learn to be a senior’s real estate specialist and counselor.
There is only one team whom has earned all five of these designations who specify our market area as a primary market of interest. Call the Kodger Team at 440-933-8326 to understand why these designations have resulted in superior customer satisfaction.
THINKING POSITIVE ABOUT OUR AREA WILL HELP!
I have often written that no matter how bad the news seems to be, as long as most of us keep a positive attitude about our area, everything will work out just fine. First, remember that all real estate values are local. We are only affected by what is happening here in the Greater Cleveland area. Second, the reduction in our housing values will not have significant consequences to those moving “within” our area. Third, the reduction in value has no immediate effect on those not moving.
First, our area was not one of those high-flying price areas, so we have not experienced as dramatic a reversal in pricing. Those speculators who purchased properties to make a quick buck in 2007 are the ones reducing their vacant home prices still today. For those not speculating and not moving, those families who buy properties for long-term shelter and comfort are not suffering financially unless they too gambled and borrowed against the expectations of continued inflated housing prices. Most of us, about 85% of all home owners across the USA
Second, if you are contemplating moving within our area into a more expensive home, congratulations, this is an excellent time! The reduced values will be beneficial to you moving from a smaller to a larger home because a 15% loss of value on a $150,000 home is less than the 15% loss on the $280,000 home which you wish to buy. If you are downsizing you might want to reconsider and make that move at a later time.
Third, if you are not moving, then all of these macerations within the real estate market should be having little to no immediate consequences to you. Follow these articles for the latest information on the local market and when it comes time for you to consider a move, call the Kodger Team for a current market analysis.
Some exciting news about our area was reported in the Sunday Plain Dealer January 30.
The article mentioned that over $2 billion have been slated for investment mostly in the downtown Cleveland Flats area. I am not one who relishes the idea of a Casino being built here because I just do not know the long-term consequences. However, the short term results could be very exciting. The old Power House on the Flats’ west bank is to become the new home of the Cleveland Aquarium. A bike/pedestrian trail following the 101 mile path of the Ohio & Erie Canal from Tuscarawas County Canal Basin Park Rivergate Park
If this and more that is planned for the Flats occur, maybe by 2019, the 50th anniversary of the Cuyahoga River Lake ” become recognized once again as the “Best Location In The Nation”!
The Causes of the Housing Boom & Bust
The Housing Boom and Bust by Thomas Sowell exposes who inflated, then burst the housing bubble. If you are sick and tired of seeing mortgage bankers blamed for the lax lending standards that unleashed the recent financial tsunami you might find the correct answer in Stanford University professor Sowell’s book.
Sowell lays out his case methodically, dispassionately and devastatingly to drive home two key points: 1. There was no such thing as an “affordability crisis” in U.S. housing before Bill Clinton and George Bush unwisely invited millions of unqualified buyers into the homeownership tent. 2. The loosening of mortgage-lending standards can be laid squarely at the feet of certain self-serving, unaccountable and largely unrepentant Congressional legislators — Sowell flays Rep. Barney Frank and Sen. Chris Dodd in particular — who coerced banks to make home loans to low-income buyers. Here in 2016 there are still new regulations going into effect from this massive 2010 bill!
But it is not just national government intervention in the free market which caused the housing bubble. Land-use restrictions in certain pockets of the country triggered an insane upward spiral in land prices in each enclave forcing housing prices to soar in lockstep. To drive home his point, Sowell contrasts San Francisco and its fellow “communities in which there were severe limitations on the building of housing” with “anything-goes areas such as Dallas and Houston.” He cites a sobering Coldwell Banker estimate that appeared in the journal Policy Analysis: “A house that costs $155,000 in Houston would cost more than a million dollars in San Jose.”
Sowell states, “A fundamental misconception was that the free market failed to produce affordable housing, and that government intervention was necessary to enable ordinary people to find a place to live. Yet the hard evidence points in the opposite direction: Where the market was more or less left alone, housing prices took a smaller share of family income.
The problem of a lack of “affordable housing,” as conceived by many in the media and in politics, bore little resemblance to the situation in the real world. It was not a national problem but a severe problem in particular places. Washington politicians who set out to solve a problem that they misconceived contributed instead to the housing boom and bust.”
The real-estate scheme Sowell proves that began in 1977 is this: Liberal government agencies and officials, on a covert quest to bring about socialized housing, have exerted pressure both explicit (the 1977 Community Reinvestment Act and its ilk) and implied (veiled threats to withhold merger approvals) to force banks to degrade their mortgage-lending standards and embrace low-income borrowers in the name of Affordable Housing.
Despite the bitterness of his anti-Barney bromides, it’s hard to contest the objective facts the author trots out. Take his analysis of the net effect that HUD pressure, for one, had on Fannie Mae and Freddie Mac. In 1996, HUD set a “quota” that a staggering 42 percent of the mortgages Fannie and Freddie purchased that year would be for below-median-income borrowers. This meant riskier loans were being valuated as good loans and lenders assumed, could always be unloaded on Fannie or Freddie, with their implied guarantees of failsafe government backing.
We are learning the folly of such government intervention into the market place and Sowell ruefully concludes that “the market (meaning us) learns — even if only the hard way — and adjusts with remarkable speed. The question is whether politicians and government bureaucrats learn, especially if they pay no price for being wrong.”
WHY SO COMPLICATED?
There was a time not long ago when it seemed as simple as a desire to buy a house. Sure you still had to apply for a loan, but that seemed to be a breeze, even if you did not have a good financial track record; many lenders bent the rules – seems like only yesterday!
However, with all that has happened as a result of the mortgage mess; the foreclosures, the "underwater" homes, TARP; the bursting of the housing bubble, buying a home nowadays requires you to be ready to show the lender a superior financial track record.
I have had to explain the procedures time and again to buyers who remind me that this is not the way they did it just a few years ago. Persons who bought in the last few years remember how easy the paperwork was to complete, and are a bit miffed by the suggestion that they need to provide proof of what is put on their applications.
The rules to buy have reverted back to the way it was before 2006. In other words, you have to show the bank all that you say, and then you have to be able to prove where your money for the down payment is coming from, to explain every item on even a near perfect credit report, and why your income has a discrepancy -- oh, and let us not forget that your w-2's and 1040's have to be approved also!
These requirements are not new. As a matter of fact many of these same requirements were in place before 2000, back when the lenders needed the loans to pass more stringent underwriting principles so they could be packaged into mortgage-backed securities that investors would be buying.
In the aftermath of the bubble bursting, the only investors left are the pseudo-governmental secondary markets that are now checking all the paperwork, and making sure the "i's" are dotted and the "t's" crossed.
So, you want to buy a house? The best thing you could do, as a buyer, is to be ready, willing and able. And this means having the down payment money in the bank, at least 3.5% of the purchase price for the down payment for FHA programs, plus another 3% of the same purchase price for the expected closing costs. Sure you may be able to negotiate some closing costs with the seller; however, these items are also watched more closely. You will just be required to provide more details and have the paperwork to support it.
Buying property is not any more complicated than it once was, it is just more rigidly reviewed, so, be prepared to give as much as the lender wants, wait as long as the lender takes, and work with all that is put on you to do. You want their money to buy; you now have to follow their new rules. It is a bit more complicated but as interest rates now in Februray of 2016 are reaching all-time lows, go buy that hopme you have always wanted because you will be buying a home you know you can afford and enjoy for years to come!
The Causes of the Housing Boom & Bust
The Housing Boom and Bust by Thomas Sowell exposes who inflated, then burst the housing bubble. If you are sick and tired of seeing mortgage bankers blamed for the lax lending standards that unleashed the recent financial tsunami you might find the correct answer in Stanford University professor Sowell’s book.
Sowell states, “A fundamental misconception was that the free market failed to produce affordable housing, and that government intervention was necessary to enable ordinary people to find a place to live. Yet the hard evidence points in the opposite direction: Where the market was more or less left alone, housing prices took a smaller share of family income.
The problem of a lack of “affordable housing,” as conceived by many in the media and in politics, bore little resemblance to the situation in the real world. It was not a national problem but a severe problem in particular places. Washington politicians who set out to solve a problem that they misconceived contributed instead to the housing boom and bust.”
The real-estate scheme Sowell proves that began in 1977 is this: Liberal government agencies and officials, on a covert quest to bring about socialized housing, have exerted pressure both explicit (the 1977 Community Reinvestment Act and its ilk) and implied (veiled threats to withhold merger approvals) to force banks to degrade their mortgage-lending standards and embrace low-income borrowers in the name of Affordable Housing.
Despite the bitterness of his anti-Barney bromides, it’s hard to contest the objective facts the author trots out. Take his analysis of the net effect that HUD pressure, for one, had on Fannie Mae and Freddie Mac. In 1996, HUD set a “quota” that a staggering 42 percent of the mortgages Fannie and Freddie purchased that year would be for below-median-income borrowers. This meant riskier loans were being valuated as good loans and lenders assumed, could always be unloaded on Fannie or Freddie, with their implied guarantees of failsafe government backing.
WHY SO COMPLICATED?
ALL I WANT TO DO IS BUY A HOUSE!
“THIS MONTH IN REAL ESTATE” reports “The economic recovery slowed in the 4th quarter of 2015 to 0.7%. However poor this was we believe the long 8 year recovery will continue. However without a greater upswing in GDP, businesses will continue to add jobs slowly. The positive news of sustainable economic growth is tempered by the longer-than-normal time frame it will take to recoup job losses.” Now that paragraph makes sense but they continued.
“High unemployment and elevated levels of foreclosure and distressed homeowners continue to be two of the biggest factors in preventing a robust recovery. The FED continues its attention to matters to help the economy. The government’s attentive attitude toward these obstacles is seen as a positive sign by industry and economic experts.”
Now that is interesting commentary – “the government’s attentive attitude …is seen as a positive by ….experts”. This mess started with the government holding rates too low too long and in forcing banks to loan to unqualified individuals to purchase homes. The latter started way back in 1976 and was pushed hard beginning in 2006 and continues to THIS DAY because of the Dodd-Frank bill signed into law in 2010. So this publication is implying that “industry and economic experts” are relying on the Government for help. Even if that were true, why are these “experts” hailing the beginning of Government help now? I thought that started in October, 2008 when the world was going to end without the Government bailing out every one of their friends using $800,000,000,000 of our tax money! May I suggest that those “experts” need to be thrown out along with everyone in office who does not understand economics? After 8 years of government help are we better off?
Using the form below as indicated. Just let us know which articles you are interested in by copying and pasting, or simply type in the number of the articles into the email box. Then click the "Send To Us" Button below.
Ken has published hundreds of weekly articles in The Avon Lake Press and has taken the time to do this as a service to his community over the past few years. We hope you find these articles interesting.
01 - 10 Good Reasons to Buy a Home Now!
02 - 100% Satisfaction Guaranteed
03 - Accentuating the Positive
04 - Anybody Ready for a Second Home?
05 - Best Home Improvement Projects
06 - Buyers Should Have Home Inspections
07 - Buyers' Earnest Monies
08 - Choosing Which House to Purchase
09 - Comparing Apples to Apples!
10 - Cut Out the Middle Man
11 - Cyberspace is Cool
12 - Decided on a home to buy? Don't worry,
13 - Details! Details! Details!
14 - Do Not Pay Those Extra Real Estate Fees
15 - Do You Have Money to Burn?
16 - First Impressions Count!
17 - Foundation Problems
18 - Give The Contract to the "Highest" Bidder
19 - Have You Decided to Move Out?
20 - Home Maintenance Tips
21 - Home Maintenance Tips for Winter
22 - How Long Will it Take to Sell Your Home?
23 - How Does the Internet Help Sell Homes?
24 - How to Know a Certified Mold Inspector
25 - Six Reasons Your Home is Not Selling
26 - The Holidays are Warmer in Your Own Home
27 - The Importance of the Title Company
28 - Why Won't My Home Sell?
29 - You Have Accepted an Offer, Now What?
30 - You're Moving Into Your New Home-Finally!
31 - THE RECESSION IS OVER”, NOW WHAT?
